Vietnam’s cheap labor advantage doesn’t come cheap

Four years ago, 30-year-old Ly Mi Vang traveled 2,000 km from the northern mountainous province of Ha Giang to the southern industrial hub of Binh Duong, looking for a job.

Not educated, he could only get manual work. His firm, which manufactures sofas, has frequent overtime work, allowing him to earn over VND9 million ($377.12) a month. He sent VND5 million every month to his family back home.

When the Covid-19 pandemic broke out, Vang lost his job. He and several others from his hometown managed to catch buses to return home before travel restrictions were imposed.

Vang has received no financial support from the government.

“I was very scared. I thought I would stay home since, but there’s no job available in my hometown,” he said.

Vang’s peers would often seek jobs at border gates, but due to Covid-19 impacts and China imposing travel restrictions at the border, those jobs were gone as well. So people looked for work in factories.

Constantly vulnerable

Since the beginning of this year, Vang has managed to secure a part-time position at a wood company in Binh Duong. Initially, he earned around VND10 million a month, but the number of orders began to drop and overtime became non-existent, followed by downsizing measures.

Vang was forced to go back home in July as local businesses stopped recruiting new workers due to a drop in orders.

“Tet (Lunar New Year) is coming and our family has seven people. I would have to go look for another job,” Vang said, adding that he has learned of an upcoming job fair in Ha Giang this week, where some businesses in Binh Duong would come to look for workers.

Vang is a typical example of those who make cheap labor possible in Vietnam. They have little to offer except their health and willingness to work hard. They can find jobs, but they are also easily disposable. Once a business’s demands are met, the workers are considered redundant.

Bui Van Lua, director of the Ha Giang employment center, said several firms in the southern region have contacted local authorities looking for workers in order to resume production earlier this year.

However, by the middle of the year, for every 10 people who manage to find jobs, six have lost them as factories run out of orders and start downsizing.

Lua said workers are hardworking, but cannot offer anything beyond manual labor, because they do not have any technical or intellectual skill, and have never received any official training in any vocation.

According to a report by the Ministry of Labor, Invalids and Social Affairs, there were around 51.4 million people of working age as of the second quarter this year. However, only 26% of them had degrees or other certificates. There is a surplus of low-skilled workers and a shortage of high-skilled ones, making Vietnamese labor force particularly vulnerable to vagaries of the market, including the impacts of disasters like pandemics.

For example, when Covid-19 broke out, the unemployment rate rose from 1.22% in the fourth quarter of 2019 to 4.46% in the third quarter of 2021. About 2.2 million workers departed from cities to return to rural areas, from major economic centers to other localities.

Both strength and weakness

Nguyen Xuan Son, country operations manager of staffing and outsourcing from Manpower Group Vietnam, said cheap labor was both a strength and a weakness for Vietnam.

A survey on recruitment trends in the third and fourth quarters last year found 57% of businesses have trouble hiring highly-skilled workers, he said.

Cheap labor also means low income. Another survey by the group showed that the income of an average worker in Vietnam is around $300, much lower than the regional average ($1,992) and the global average ($2,114).

A survey by the Japan International Cooperation Agency revealed that the average monthly income of Vietnamese workers in Japanese factories in the country, $236, was just half compared to Chinese or Thai workers.

“With low income and without savings, workers cannot stand on their own feet once they lose their jobs. Support packages at VND1-3 million for each person are like grains of salt in the sea,” said Nguyen Duc Loc, head of the Social Life Research Institute.

Worse, many workers cannot even access the meager support offered by relief packages due to procedural difficulties. At the end of last year, only a little over 15 million people had participated in the social insurance scheme, which accounted for just 34% of eligible workers. This shows that when the job market gets shaken up, many people get no protection from social security nets.

Another survey by the Social Life Research Institute late last year showed that before the Covid-19 pandemic, 45% of workers had incomes between VND5-7 million a month, around 30% had monthly incomes below VND5 million, and over 60% of workers had no savings.

Loc said after the pandemic happened, half of the people surveyed said they would not be able to last a month without a job. The current economy is dependent on manual workers, including in export-oriented sectors like textile, shoemaking, wood and electronics. This means that global market disturbances will leave millions of Vietnamese workers in deep trouble.

Weak social security

Bui Sy Loi, former deputy head of the National Assembly Committee on Social Affairs, said the labor market at industrial centers rendered workers vulnerable because localities have not invested enough on their social security infrastructure.

For example, just 8% of migrant workers in HCMC have their own homes, while the rest have to rent their accommodation. Even long-time government workers in the city are considered short-term residents who do not get due medical and education benefits for their children, affecting their motivation, performance and readiness to leave for better-paying options.

Loi said that when workers’ incomes are low and they encounter major disturbances like a pandemic, support packages from the government are of vital importance. However such policies are not implemented effectively, meaning workers cannot receive their support money in a timely manner, making them leave.

FDI disadvantage

Le Duy Binh, CEO of Economica Vietnam, said cheap labor was a long-term consequence of localities accepting FDIs for labor-intensive industries. The problems of Vietnam’s labor market have existed for years, but they were highlighted only in times of extreme crisis like the pandemic or a severe economic downturn.

Over 90% of FDI coming into Vietnam are focused on simple manufacturing industries, like clothing or food processing, according to government statistics. These are industries that tend to use low-skilled labor, even those who have had no prior training.

JICA said Vietnam’s population is aging quickly and in 2050, with only 60% of the population in their working age, the majority would be over 60 years old. Unless productivity is increased and more workers join the workforce, an aging population would lead to slower economic growth and increased likelihood of worker shortages. At that moment, Vietnam would lose its advantage of cheap labor in labor-intensive fields, JICA predicted.

Binh said industries like wood, textile or leather that use millions of workers cannot be Vietnam’s future. Businesses also need to change and up their value. The role of the government is to prepare workers for this inevitable shift, and not doing would rob Vietnam of its competitiveness. Workers would face unemployment and without any source of income, weak social security nets cannot really help them.

He said: “Workers like Ly Mi Vang need to be trained to join the high-tech agriculture sector back home and not move thousands of kilometers to become a manual laborer.”